WHAT ARE CASHBACK CREDIT CARDS AND HOW DO THEY WORK?

Cashback credit cards have gained popularity among consumers due to their rewarding nature on everyday purchases. These credit cards provide a refund to the cardholder for spending on eligible products or services. When you make a purchase with a cashback credit card, you receive a percentage of the amount spent back as a cash reward. This attractive incentive makes cashback credit cards a preferred choice for many who shop both online and offline.

How Cashback Credit Cards Work

* Making Purchases

When you use a cashback credit card to buy goods or services, you earn a certain percentage of the amount spent as cashback. For example, if your card offers 2% cashback and you spend Rs 10,000, you will earn Rs 200 as cashback.

* Eligibility and Offers

Different credit cards offer various types of cashback deals. Some cards provide a flat cashback rate on all purchases, while others may offer higher cashback rates for specific categories such as groceries, dining, or fuel. Banks run promotional offers, so it’s wise to check their deals and apply for cards that match your requirements.

* Cashback Accumulation

The cashback earned from purchases is usually accumulated in your credit card account. Depending on the card issuer, the cashback can be redeemed as a statement credit, direct deposit to your bank account, or as vouchers or gift cards.

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Benefits of Cashback Credit Cards

* Higher Savings and Flexibility

Cashback credit cards can help you save money on every purchase. The savings, although small per transaction, can add up significantly over time. Unlike reward points that need to be converted or redeemed, cashback is straightforward. It’s a direct financial benefit that reduces your overall expenditure. Also, cashback can be used as you wish, whether to pay off your credit card balance, deposited into your bank account, or sometimes even converted into gift cards or vouchers. It is easy to make use of your cashbacks.

Possible Drawbacks to Consider

* Interest Rates

If you carry a balance on your credit card, the interest charged can outweigh the benefits of the cashback earned. It’s essential to pay off your balance in full each month to truly benefit from a cashback credit card. Cashbacks help you reduce your overall spending but if you pay interest rates and late charges on your credit cards the entire purpose of this benefits get defeated. Paying your card bills on time is crucial.

* Annual Fees

Some cashback credit cards come with annual fees. You must know about annual fees before applying for the cards as typically banks inform you about these charges and exemptions of paying annual fees in case you spend specific amount in a month that may vary from card to card.

* Avoid Overspending

Cashback offers does not mean you will make unnecessary spending. It is always advisable to stick to your budget and spend within your means, even if the purchase earns you cashback. One of the most important thing to manage your credit cards is to repay your debts on time to avoid late fees and getting your credit score affected.

Cashback credit cards offer a convenient and rewarding way to make the most out of your everyday spending. By choosing cards that align with your spending habits, you can enjoy substantial savings. Always remember to read the terms and conditions, keep an eye on promotional offers, and manage your credit card usage wisely to maximise your cashback benefits.

(The author is CEO of Bankbazaar.com)

Disclaimer: Views expressed are personal and do not reflect the official position or policy of FinancialExpress.com. Reproducing this content without permission is prohibited.

2024-08-25T12:18:12Z dg43tfdfdgfd